1. 11- 1 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall i t ’s good and good for you Chapter Eleven Pricing Strategies

2. 11- 2 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Pricing Strategies New-Product Pricing Strategies Product Mix Pricing Strategies Price Adjustment Strategies Price Changes Public Policy and Marketing Topic Outline

3. 11- 3 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-skimming pricing Market- penetration pricing Pricing Strategies

4. 11- 4 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily

5. 11- 5 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

6. 11- 6 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market

7. 11- 7 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

8. 11- 8 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

9. 11- 9 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Product line pricing Optional- product pricing Captive- product pricing By-product pricing Product bundle pricing

10. 11- 10 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices

11. 11- 11 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Optional-productpricing takes into account optional or accessory products along with the main product Product Mix Pricing Strategies

12. 11- 12 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product

13. 11- 13 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery.

14. 11- 14 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies Product bundle pricing combines several products at a reduced price

15. 11- 15 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographic pricing Dynamic pricing International pricing

16. 11- 16 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product Discounts Allowances

17. 11- 17 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost

18. 11- 18 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies To be effective: Market must be segmentable Segments must show different degrees of demand Watching the market cannot exceed the extra revenue obtained from the price difference Must be legal Segmented Pricing

19. 11- 19 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product –Noting current prices –Remembering past prices –Assessing the buying situations

20. 11- 20 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

21. 11- 21 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand

22. 11- 22 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Risks of promotional pricing Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price Creates price wars

23. 11- 23 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations

24. 11- 24 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Setting prices for customers located in different parts of the country or world. Geographical Pricing Price-Adjustment Strategies

25. 11- 25 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies International pricing is when prices are set in a specific country based on country-specific factors Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective

26. 11- 26 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Initiating Pricing Changes Price cuts occur due to: Excess capacity Increased market share Price increase from: Cost inflation Increased demand Lack of supply

27. 11- 27 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Price increases Product is exclusive Company greed Price cuts New models will be available Models are not selling well Quality issues Buyer Reactions to Pricing Changes

28. 11- 28 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Questions –Why did the competitor change the price? –Is the price cut permanent or temporary? –What is the effect on market share and profits? –Will competitors respond? Responding to Price Changes

29. 11- 29 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Solutions –Reduce price to match competition –Maintain price but raise the perceived value through communications –Improve quality and increase price –Launch a lower-price “fighting” brand Responding to Price Changes

30. 11- 30 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Responding to Price Changes

31. 11- 31 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Over the previous decade, Kodak’s market share had dropped as many of its customers switched to Fujicolor Super G film, which was priced 20% lower than Kodak’s best-selling Gold Plus film. Faced with continuing losses in share, Kodak launched a fighter brand called Funtime, which sold at the same price as Fuji’s offering. In an attempt to avoid cannibalization, Kodak manufactured Funtime using an older, less effective formula emulsion that made it significantly inferior to Gold Plus. But what appeared, from a corporate standpoint, to represent a genuine product distinction was lost in the subjective world of consumer interpretation. Already a low- involvement purchase, film had increasingly become a commodity, and most consumers were unaware of the differences in product quality. They simply saw Funtime as Kodak film at a lower price, and the fighter brand ate into Gold Plus sales more than it damaged Fuji’s. Kodak withdrew Funtime from the market after only two years and began to experiment with other alternatives. https://hbr.org/2009/10/should-you-launch-a-fighter-brand